Making Corporations Disappear

November 10th, 2011 by Phil Mattera

From the 11-year prison term and $92 million fine imposed on convicted insider trader Raj Rajaratnam to the apparent misappropriation of hundreds of millions of dollars in client funds at failed brokerage firm MF Global to the admission by Japan’s Olympus Corp. that it has been cooking the books for years, the news is full of reminders about the criminality that pervades the corporate world.

At the same time, the ongoing Occupy movement has been bringing renewed attention to the disastrous consequences of the Supreme Court’s Citizens United ruling that enshrined corporate personhood. One of the more popular protest messages seen at Occupy encampments is: “I will believe that corporations are people when Texas executes one of them.”

As Russell Mokhiber of Corporate Crime Reporterpoints out, the idea is not so far-fetched. For the past two decades there has been a small but persistent campaign to promote the idea that the state-granted charters of rogue corporations could be challenged, thereby putting them out of business. The movement was pioneered by Richard Grossman, who co-authored a well-circulated 1993 pamphlet entitled Taking Care of Business, which outlined legal and historical justifications for charter revocations.

Grossman’s evangelism helped create the Community Environmental Legal Defense Fund, which helps communities fight corporate intrusions at the local level, and the Program on Corporations, Law and Democracy, which publishes materials that “contest the authority of corporations to govern.”

These groups and others were challenging corporate personhood even before Citizens United, and groups inspired by these ideas launched campaigns to challenge the charters of outlaw corporations such as Union Carbide (largely because of its role in the Bhopal disaster) and Unocal (because of its role in oil spills, frequent workplace safety and health violations, and human rights violations in its relations with repressive governments).

The idea began to catch on. In 1998, Eliot Spitzer, then a candidate for New York Attorney General, said he would not hesitate to push for the dissolution of corporations found guilty of criminal offenses. In the early 2000s, groups in California pushed for a corporate three strikes law to deal with recidivist business offenders such as Tenet Healthcare.

The charter revocation concept waned for a while but had a resurgence last year in response to the outrageous behavior of BP in the Gulf oil spill and that of Massey Energy in creating the conditions that led to the Upper Big Branch mine disaster in West Virginia. Massey ended up being taken over by another company, but BP remains in business despite the fact that its misconduct in the Gulf occurred while it was on probation for earlier federal offenses relating to a 2005 refinery explosion in Texas and 2006 oil spills in Alaska.

The Occupy movement sets the stage for a new assault on corporate recidivists. There is no shortage of offenders. For instance, the New York Times just showed that numerous investment banks have committed repeated violations of Securities and Exchange Commission anti-fraud rules. Mokhiber suggests that potential candidates for the corporate death penalty include health insurers, nuclear power plant operators, giant banks and firms engaged in hydraulic fracking.

The real challenge is to figure out what it would mean to execute a giant corporation. There are few precedents for doing so. Nearly all the major companies that have gone out of existence have done so as the result of takeovers by other large firms. In a limited number of cases such as Enron and Lehman Brothers, companies were forced to liquidate, but by the time this happened the firms were effectively worthless.

Unanswered is the question of what would happen if a large and healthy corporation had to cease operations because of a charter revocation. Selling off the company piece by piece in fire sales to other large corporations would have the undesirable effect of increasing concentration in the industry.

While it may be morally satisfying to say that such a firm should simply vanish, that would be unfair to the workers and other stakeholders who may have played no role in the criminal behavior that brought on the revocation. Besides, this too could result in higher industry concentration as other firms capture the disappearing company’s market share.

What’s needed is a set of protocols for a just transition of a de-chartered company to a new corporate form based on principles such as trust busting (splitting up business behemoths into smaller entities), worker ownership, environmental responsibility and community oversight.

A distinction would have to be made between disappearing companies in those industries that serve a legitimate need and those which need to be phased out for reasons aside from the behavior of individual firms (coal, tobacco, for-profit health insurance, etc.).

Figuring out how to dismantle large companies will be a huge and complicated task, but it is an essential undertaking if we are ever to escape from the era of corporate domination.